In the aftermath of last week's disclosure to preempt the massive hoax story sourced by one "Sorcha Faal" involving a whole lot of false allegations pertaining to DSK, Russia and gold, all of it based not one single, sourcable fact, we have now been inundated with emails directing us to a story which has appeared in CNS News (and the fact that it was carried by Drudge Report does make it any easier), titled "China Has Divested 97 Percent of Its Holdings in U.S. Treasury Bills." Once again, while most readers will see right through this superficial attempt at clickbaiting, for the benefit of everyone else, we would like to briefly respond to how this article would look like when one actually looks at the facts.
Where does one start..
First of all, we wonder why the author waited until now to highlight that Chinese short term debt holding had dropped to $5.69 billion in Bill holdings (in reality $5.7 billion) when back in June 2010 the total was far lower, or $3.999 billion. One could have penned a just as irrelevant headline that "China has divested 98% of Bills" last summer"... But one didn't, because as the next chart indicates, Chinese Bill holdings, which Zero Hedge reports on at every single monthly TIC update, are about 0.5% of total Chinese debt: in March the $5.7 billion in Bills was matched by $1139.2 billion in Long-Term Debt. Incidentally, Chinese LT debt has increased by $31 billion since last June, when Chinese bill holdings really hit an all time record low.
Here is what the "collapse" in Chinese Bill holdings looks like when mapped for the most recent series of Apples to Apples data - Chinese short term holdings in red; Long Term holdings in blue:
Second, and here is why we note the Apples to Apples data, it appears that the author of this article is unaware that TIC data gets revised on a periodic basis, especially as pertains to Chinese and UK holdings of Treasury data (we also wonder if the author knows that China often uses UK offshore proxies as a source of purchases, and thus he would have to account for UK short-term debt holdings in his expose). Back in February we made a mention of this: "Chinese Treasury Holdings Revised $268 Billion Higher To $1.12 Trillion, Fed Still Top Holder Of US Debt." As a result of the reclassification, any data relevant to China pre-June 2010 is unusable as the periodic TIC data revisions only goes back to any given June at which point the guessing game begins. In other words, for a factual and balanced report, the only data that could be extrapolated is that Chinese Bill holdings have declined from a peak of $45.9 billion to $5.7 billion in the current valid period of observation, while total holdings have increased from $1,112.1 to $1,144.9 billion. Hm, does not have quite the click bait headline features to it, does it?
And since the bulk of Chinese purchases in the current post-June series are once again occurring through the UK, perhaps the author can advise us just how many of the $17.3 billion in Bills held by the "UK" proxies of Chinese institutions are actually Chinese. This, however, can not be answered with any degree of confidence, until the next full year TIC data revision. We would imagine the answer is "more than quite a bit", thus making any even broadly generic statement of just what China's true exposure in terms of Bills is, impossible.
Third, what the author should have indicated, is that Chinese Bill holdings only surged back in 2008 as a result of the Lehman Bankruptcy, when everyone scrambled to the safety of short-term US debt. The long-term chart below (which we admit is not indicative of an apples to apples comparison, yet is the best that can be done with TIC data) showing the composition of Chinese ST and LT holdings shows that the May 2009 record Bills held was actually the outlier. The norm was the roughly $20 billion Bill average in the January-August 2008 period. That China would move back from Bills to Bonds once the Fed had decided to onboard all the US sovereign risk (any discussion of the fact that US taxpayers were saddled with $24 trillion in bank bailouts at the peak is something different altogether) is perfectly normal and is in no way indicative of anything ulterior, but merely prudent yield management.
Fourth, and this is a valid point which we noted the second it hit the tape, total Chinese holdings have declined for five months in a row. However, one would hardly make the conclusion that the 2.5% decline in notional bonds from October 2010 through today ($1,175.3 billion to $1,144.9 billion), is earthshattering, and certainly pointing out that total Chinese holdings have dropped by 2.5% from their peak has far less click-bait potential, than claiming that Chinese Bill holdings have declined by 97.5% from their peak.
Lastly, nowehere in the author's discussion is there any mention that the yield on the 3 Month is just 0.03%, on the 6 Month is 0.10% and on the 12 Month is 0.17%. Frankly, the Chinese would be stupid to keep money in Bill format. And yet they do. As to why the yields are where they are, that is also a totally different story, and has to do with the Fed's desire to recreate central planning (selling quite a few Treasury curve puts in the process or maybe even commencing Operation Twist 2) and succeed where so many Soviet dictators have failed.
The truth is that the only important chart is the one below, showing the notional of the top holders of US debt... and the Federal Reserve. Everything else quite frankly is irrelveant. If China does indeed decide to dump its holdings, which it most certainly has not so far, trust us: you will hear it here first. And the real concern, for those who enjoy speculating on "what if" scenarios, is what happens if and when QE 3 is announced, and the Fed becomes a greater holder of US Treasury securities than China, Japan, the UK and pretty much everyone else combined.